Saturday, February 16, 2013

CITI: Gold Has Fallen To A Pivot Point, Minimum Price Target Now $2,055

C.S. It is the time of total desperation in Gold Miners and, particularly, Junior Miners these days. Investors are questioning this Bull and are throwing the babies with the bath water all over again. Time is to look at the charts and to rub our Crystal ball.

"Frank Holmes has presented the beautiful deck on Global Trends and the place of Gold in this day and age. Please notice the recent average grades of producing Gold mines and the scarcity of the new discoveries with the magnitude of 3 MOZ and more."

“We believe we have just reached the ideal pivot for gold to form a base and move higher as it did after the 16 month consolidation in 2006-2007," wrote Fitzpatrick who now has a“...a minimum (price) target of $2,055-$2,060.”

First of all, our December Call on Apple: timing was perfect this time - it was a very powerful formation. There is still room to fill to 400, prudent way will be to take profit now and run 30% of the Short position Down to the target. Too many people are selling Apple now and Gold provides much more lucrative proposition as per below.

We like what we see on on the Long Term Gold chart from CITI. The chart above is not so apparent, but provides support to the same idea. After previous Bull Leg Up Gold is in the consolidation pattern and has created two Bullish wedges. Last week sell off "coincided" with Currency Wars talks among G20 and some help from JP Morgan selling heavily all the week. Soros has announced that he has reduced his holdings in GLD, but we trust more the Gold appetite from China and Russia buying in increasing volumes alongside with other Central Banks. And who knows, maybe, Soros is just switching to the Physical from the Gold ETF among other players.

Next week Chinese will return from the holidays and it will be interesting to see the direction in Gold. We are in transition stage now from Gold as Insurance Play to the Inflation Play. The real driver for the Gold price is increasing monetary base, debasing of the currencies and negative Real rates. Our best gains in Gold and, particularly, Gold Equities we had after 2002, when economy was "recovering" and FED was solidly behind the interest Curve.

Now we have all fundamentals in place for another Gold Bull Leg Up to start and, according, to CITI this coiled market is ready to move very soon. The very strong technical support is at 1550 and Gold should bounce of it in this scenario forming the strong Reversal Candle on weekly, still missing in the picture.

Gold Miners are at the very important pivotal point as well. Should the Gold find itself in the new Leg Up - they will follow. Even more importantly, they must confirm the Gold's move. We have the right set up for this action now. Last few weeks sell off was particularly brutal and we can talk about the Capitulation in this market. We can have the double Bottom reversal on Monthly chart, which will be very strong formation.

Gold Majors are suffering: despite strong Gold prices companies are experiencing margin compressions with cost even outrunning the Gold price run. New projects are late on time and over the budgets, massive writes off, from the previous expansion phase were the main news in the latest reports. All these developments will support the price of Gold marching Up again.

Here is where we can see the Main Investment Theme: M&A in search for the ever decreasing Gold Reserves in Stable Mining Jurisdictions. It will be safe to say that you can forget about any Gold production in Russia and China - all that gold will be accumulated within those countries. Africa is losing its battle being caught between geopolitical interests in the War for Oil. Canada and North America and, particularly, Alaska will attract new wave of consolidation among juniors providing the pipeline of projects for the majors.

The next main action in the Gold market will be among Junior Miners. If Majors are depressed by now, Juniors have been just slaughtered. We can see the same capitulation on the chart above, as with GDX before.

Problem here will be that maybe 80% of this market will be gone for good in consolidation and bankruptcies. It will be very selective game from now on. Only Special Situations will bring the serious money. Assets, Teams and Access to the capital will be the prerequisites for the lead in this game, as usual.

The Chart above is the driver for the Gold Inflation Play. Once the world will stop to worry about its own end, China's Growth will be the main driver for Gold. This picture is still intact after our Apple observations in December.

As Jim Rogers has suggested: "Do what you know the best". We will paraphrase: invest in what you know the best. Here where McEwen Mining comes into the picture. Even Mr GoldCorp - Rob McEwen was not spared by the brutal Mr Market. After acquisition of Minera Andes by US Gold with combined market caps of over 2 billion dollars in the first half of 2011, when the "merger" has been announced - McEwen Mining was trading last Friday at roughly 796 million (296 million Common and Exchangeable Shares at 2.69).

We have been investing in Minera Andes years ago at 0.40CAD and we were fortunate to sell it at its run to over 2.0CAD in 2007. Later we have revisited this story with TNR Gold and its Claims to Los Azules. There were very heated discussions among Minera Andes shareholders about the price paid for their company. Only the future will tell whether Minera Andes' assets will still allow Rob McEwen dream about S&P 500 to happen or they have just brought the curse from Argentina to his new company.

Fragile market confidence was not helped by the Rights Offering at 50% discount at the moment of announcing in October 2012 - at 2.25 dollars. Trade was quite obvious and Shorts were selling MUX at market, planning to cover by buying the Rights, which were trading on the market as well. This is where we find McEwen Mining at the moment of writing - with 2.69 at Friday's close company is just 20% above the Rights Offering price. Its market cap is far cry from the needed 4 billion dollars in order to qualify for S&P inclusion in 2015, company needs at least 120 million for the El Galo expansion and another Rights Offering can easily bring it below 2 dollars. Market knows it and punishes McEwen Mining with the rest of the Gold market as we have discussed above.

Should we write off Rob McEwen and his Midas touch? Contrary, we would say that it could be the most intriguing story in the making in our turn-around Gold juniors. All those bad news and developments are already in the market. Short position in MUX has been at 29 million shares as of the end of January. Company has reported spectacular results from Los Azules and announced the expansion of the resources. BMO was hired to market the "One of the World's largest undeveloped copper project". According to Rob's facebook page, last week McEwen Mining had meetings in Toronto presenting Los Azules developments. Barrick Gold's Pascua Lama was reportedly cleared from "Rock Glaciers" investigations and has received the support of San Juan government in Argentina. McEwen Mining with Los Azules is being reviewed this month.

Here where Rob McEwen will be coming at his prime as promoter - running against the clock for his goal to qualify for S&P 500 by 2015 he has the last opportunity to turn this story around. 70 million in cash will not buy the place in S&P 500 by itself or even the Second Stage at El Galo, but it will be enough for the "Chief Owner" to fight for his company. Research valuations of McEwen Mining, including the Los Azules valuation will draw the market attention and any hint about the potential buyers for this world class copper asset can make Shorts rushing to cover.

Watch out the retest of 2.25 and developments around Los Azules - it will be the key to McEwen Mining performance.

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Dedicated to all those brave men who have been fighting the bear market in 2000 and buying the dips without understanding that they were looking straight into the abyss. Do not trust your money in anybody, for you are the one who is going to be rich or poor, not those that are advising you: always do your DD. Disclosure: We are putting our money where our mouth is.